Indias automotive opportunity

Indian Prime Minister Narendra Modi is determined to revitalise the country’s manufacturing sector. How will the automotive sector fare in this new-look India?

13 February 2015

Although the Indian automotive industry has shown significant potential for growth in the past 25 years, it has not lived up to expectations. Like India, China had the advantages of labour arbitrage and demographic dividend.

While China has capitalised on these conditions to capture a quarter of global production, India still accounts for a mere four per cent. The lack of a manufacturing friendly economic environment and the dearth of investment in infrastructure, technology and talent have resulted in higher costs, lower efficiencies and stunted growth for the Indian automotive sector.

So the mantra for India now must be: ‘If China can do it, so can India’.

With a new pro business government in power, coupled with the rise of a new Indian consumer class, the opportunity for real growth in India is evident. The Indian Prime Minister, Narendra Modi, has staked the success of his first term on the revival of the manufacturing sector with the ‘Make In India’ campaign. Accounting for nearly 30 per cent of the production sector in India, automotive will play a central role in achieving Modi’s goal.

But a word of caution. In the past, Indian governments have both over-promised and under-delivered. The key question is: what strategies will the sector itself pursue, regardless of government effectiveness? Although the priorities for individual automotive companies will be different, there are some common themes which are viewed as crucial for the industry as a whole.

R&D is the most critical. In recent years nearly all foreign vehicle manufacturers such as BMW, Mercedes and JCB have set up R&D centres in India. In order to both compete and export, Indian companies are also starting to invest heavily in enhancing their R&D capabilities.

Providing impetus to quality and operational excellence will be the other major priority. Labour needs to be significantly upskilled and given permanent status. Only then can companies deal with the glaring issues of labour unrest and shop floor inefficiencies.

As the sector embarks on a new journey, it will become imperative to address some key industry challenges. Lack of advanced engineering capabilities and innovation, highly fragmented component industry, lack of strategic leadership capability and the dearth of specialist, technical skills are some of the major issues plaguing the industry.

Bringing in expatriates with technical expertise, hiring returning Indians with global experience and providing international exposure to groom Indian leaders are some of the solutions being adopted.But there is a need to be more proactive and innovative.

If the sector can take control of its own destiny, then there is no reason why it cannot transform itself into a global force to be reckoned with.

This piece derives from a longer White Paper looking at the state of the Indian automotive industry which can be downloaded.